transaction fees - fractions of bitcoins that incentivise miners to include transactions in published blocks.the block reward (currently 12.5 BTC) issued to the publisher of every block. They take part in this competition for two kinds of rewards: The people who do this are called Bitcoin miners. There is a big worldwide competition going on all the time - known as the mining race - to win the right to add a new block to the blockchain.Įntering this competition requires users to purchase specialist mining hardware that consumes quite a bit of electricity the hardware itself is likely to become rapidly obsolete due to more efficient hardware being invented all the time - so it is not a profitable activity for most people. This prevents the kind of erosion of value that plagues ‘normal’ currency (a phenomenon that the residents of Zimbabwe and Venezuela know only too well).īitcoin mining is the process of adding new groups of transactions (known as blocks) to the shared transaction record (known as the blockchain). There will never be more than 21 million bitcoins and each bitcoin is itself divisible into 100 million units known as Satoshis. The supply of bitcoins is carefully controlled and limited, and no one can create or issue more bitcoins at will. People don't necessarily notice this erosion because the nominal amount of their money remains the same however, they do notice that their weekly shop, eating out, and watching movies costs more and more money. That's not too much of a promise if you consider that all the backing authority (like the Bank of England) has to do is to print another piece of paper to satisfy that promise.Īs more and more money is created, it erodes the value of the existing money in circulation. (Next time you find a tenner in an old pair of jeans - have a look.) "I promise to pay the bearer on demand the sum of ten pounds." Now if you read the promise on a £10 note, it says (in very small letters): The ‘normal’ money we use today is actually rather unusual in the history of money, in the sense that it is no longer itself precious (like gold coins). Why would someone want Bitcoin instead of ‘normal’ money? It is very hard, if not impossible, to shut down or interfere with.Ĥ. Having thousands of nodes makes it difficult to have a common record of all the transactions - but a technology known as blockchain makes this possible.īlockchain is a shared transaction record - it prevents anyone from ‘double spending’ bitcoins and makes it extremely hard for anyone to alter historical transactions. Instead, it operates over a global network with thousands upon thousands of nodes - a machine within a network like a computer or some other device - which together process and store transactions.
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